Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Thursday, January 22, 2009

KEEPING TRACK OF BUSINESS MILEAGE

An exchange with a fellow tax preparer last week “inspired” today’s post.

We were discussing keeping track of business mileage, and it came up that most of us tax pros, and probably most other business persons, make multiple trips to the same locations on a regular basis – in my case to Office Depot for supplies, to my mail drop (which is also a client), to the bank, and to various business clients.

I was reminded of a practice many, many, many years ago when I was a “para-professional” (official title was “Business Services Associate”) in the Small Business Department of Deloitte, Haskins + Sells – one of the then “big eight” international CPA firms. We had to record the mileage to and from our client’s offices on our time report. The firm would reimburse us for business miles – and would turn around and bill the client for the mileage. But rather than have to count the miles for each individual trip the firm provided employees with a chart that listed the round-trip mileage from our office to each of the firm’s clients. If Client A indicated 20 miles each time I would go to Client A I would record 20 miles on my report.

I expect that the mileage was clocked on the first visit from the office to the client, and that mileage was used as the standard for every trip from then on. If a client moved the standard would be changed accordingly.

My colleague mentioned that she had heard of clients who looked up the mileage between the addresses of their office and the business location in Yahoo or Google, and used that figure instead of actually clocking the mileage. I felt this could short change the driver. Isn’t the mileage provided on these online services more “as the crow flies” than actual driving miles? I think it is much “more better” to do as I think DH+S did – on your first round-trip to a location to which you will be making multiple stops record the exact mileage from your odometer. You can then use the same miles each time you make a round-trip from your office to the location.

There is a downside to using a pre-determined mileage figure. In reality each individual round-trip to a location is not always exactly the same number of miles.

On one trip excessive traffic may cause me to take an alternate route to save time – i.e. get off a major highway and take back roads, which is more actual miles but less travel time. Or road construction or an accident may force me to take a detour that ends up being more miles. On another trip I may stop to buy office supplies or visit the Post Office to mail business packages on the way to or from a client, which would add a couple of miles to that specific trip.

I realize that we are not talking about thousands of miles lost – but if you do a lot of client visits the added miles could add up.

The bottom line is that clocking each and every individual business trip is the best and most accurate way to record your true business mileage. This is not difficult – you just have to get into the habit. You can use a simple pocket date book to keep track of business trips. Enter the location, business purpose and miles driven. For example - “Office Depot (Union City) to purchase office supplies 4 miles” or “Business Client, LLC (Watchung) to do payroll and accounts payable 56 miles” or “Wachovia (Union City) to make deposit for client 3 miles”.

If you are the lazy type – or forget to set the odometer – you can always use a standard mile amount – the “DH+S method”. But remember - you still have to keep a record of the date, location, and business purpose for each trip in some kind of log or record book.

5 comments:

Actually, Google and Yahoo maps calculate mileage based on the most efficient driving route, as determined by their fancy direction-finding algorithms. If their determination of the best route between two points is the same as the route that one actually drives, then theoretically the mileage given by Google/Yahoo should match that given by your odometer.

If you are traveling directly home after a client visit and bypassing the office, do you calculate mileage if it is in excess of your usual mileage home? Or do you calculate mileage back to the office despite not going there? I'm just curious about normal business practices.

You cannot deduct the mileage from your home to your first business stop in the morning or from your last business stop to your home in the evening. This is “commuting”.

Since you are going directly from the client to your home this is part of your commute and the mileage is not deductible.

I will tell you that when I worked for one of the then “big eight” international CPA firms many, many, many years ago in such a situation staff members would record the mileage from the client back to the office, even though they did not go back to the office, on their expense report. The client would be billed for this mileage, and the staff member would be reimbursed for this mileage. I expect that this is still being done at such firms.

Like you say the hardest thing is forming a habit. I hear it takes around 27 days to form a habit properly. I take a look at my odometer every time I make a trip to track my mileage and use a software called 1DayLater to log it. http://1daylater.com

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